FICO - Your Credit Score

Since we live in an automated world, it's not surprising that your ability to repay your mortgage boils down to just one number. The FICO score is built by credit agencies. They use the payment history from all of your loans: mortgages, car/motorcycle loans, credit cards, etcetera.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, all of the agencies use the following to calculate your credit score:

• Your Credit History - How long have you had credit?
• Payment History - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most borrowers who want to get a mortgage in the current environment score 620 or above.

Your FICO score affects your monthly payment

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

How can you improve your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you must appeal incorrect items on your credit report.)

Know your FICO

To raise your credit score, you've got to obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO credit score, offers scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from the three major credit reporting agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about credit scores? Call us: 6307173600.